Download 2015 Long-term Investing Report

FULL REPORT // JUNE 2015
2015 Long-term
Investing Report
Taking a long-term view of the
historical investment landscape.
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Executive summary
Executive summary
Two strikes, one more to go?
The 2015 Russell Investments/ASX Long-term Investing
Report highlights the dangers of Australian investors relying
on local asset classes to achieve their long-term investment
goals. With Australian equities continuing to lag overseas
markets (in 2014 as with 2013), local currency falling and
interest rates reaching historic lows, it may now be only a
matter of time before the residential investment property
market follows suit.
Investors are still relying on the fact that, over the last 20
years, residential property and equities provided the highest
returns to Australian investors. They delivered an average
of 9.8 and 9.5% p.a. respectively – a pattern mirrored on an
after-tax basis.
However, narrowing the view to the last 10 years,
international bonds and equities performed better than
both residential property and Australian equities. Although
the after-tax preferential treatment of Australian equities
put them back on top of the pile, the drop in the 10-year
numbers points to recent lacklustre returns for both
Australian equities and the Australian dollar.
Our investment strategists believe future Australian
performance figures for equities will continue to grow
slower than many global counterparts and the dollar will
continue to come under pressure. ASIC is now warning
that borrowers in the hot Sydney and Melbourne property
markets could be burned when interest rates rise or
unemployment spikes.
Although Australian residential property returns to both
non-geared and geared investors continued to be strong
over the long term, returns over the last 10 years rank fourth
out of the nine key asset classes compared in the report.
With two strikes against two of the traditional ‘triple treats’,
and warning bells ringing for the third, it’s time for investors
to diversify away from purely Australian equities, bonds
and residential property – before they find themselves out
of the game.
Strike 1: Australian equities once again lag
overseas markets in 2014
2014 saw Australian equities lag overseas markets for
the second year in succession. Further weakness in the
Australian dollar meant hedged overseas equities felt
a weaker tailwind than unhedged equities – Australian
equities underperformed by 6% and 9% respectively.
This reduced the 10-year return on Australian equities
from 9.2% to 7.1%.
Looking ahead, many indicators point to a continued
decline. The Australian economy is lacklustre. Although
commentators believe it appears to be “muddling
through”— this is hardly a ringing endorsement. Also,
the share market’s fortunes are heavily tied to China’s
deteriorating demand for iron ore – and to the prospects
of Australia’s four major banks. With the chances of a
prolonged downturn in China’s steel consumption and
volatility in bank stocks, investors are becoming skittish –
with good reason.
Strike 2: Poor outlook for bonds and the Australian
dollar
Against predictions, 2013 was not the turning point for
falling bond yields. Global yields dropped even further and
negative yields became accepted in Europe – a trend that is
now being openly considered in other regions. The Reserve
Bank of Australia (RBA) dropped rates to historic lows in
2013, left them on hold for 2014, and has now cut them
even further. Like most commentators, we believe that rates
are set to rise, probably beginning with the US in the latter
half of this year.
This will mean we cannot expect the 2014 annual returns
of 9.8% and 10.4% for Australian and global bonds in the
future. In fact, we expect much more modest returns in line
with those of 2013, with the potential for negative returns as
capital falls negate annual coupons.
The prospect of rising rates outside of Australia means
further pressure on the Australian dollar. Despite its poor
performance over the last two years, our local currency is
still widely considered to be overvalued. If the US raises
rates, as expected, and the gap between US and Australian
rates is getting squeezed from both sides of the Pacific, we
expect the Australian dollar to decline further this year.
1
Will Australian residential investment property
be next?
Australian residential property returns to both non-geared
and geared investors (high and low tax rates) continue to be
strong over the long term. In 2014, median property prices
rose again (for the third year in succession and the sixteenth
in the last 20) by nearly 7% in 2014.
Further headline-grabbing price rises were ignited by the 50
basis points (bps) of interest rate drops in 2015. Each 25bps
drop in interest rates apparently adding extra fuel to the
price of a home or investment property.
However, the headline median price rise in Australia does
not tell the full picture. Clearance rates in Sydney continue
to be “sky high” with rates often quoted in excess of 80%
and median property rising by 15%. But outside of Sydney,
the returns were less headline grabbing, with Adelaide,
Melbourne and Brisbane all around 4% and Perth lower still
at 1%. Even within the state capitals, price rises deviated
significantly throughout 2014. For example, zones in Sydney
varied between 11-18%. Away from the state capitals,
the story changed again, with 2014 price increases for
Wollongong and Newcastle at 11% and 5%, respectively.
In other words, although the ‘median Australian property’
performed very well over the last 10-20 years, this does not
mean the same will be true of the property down the road,
the new block of units being built round the corner or even
the median property in a particular suburb.
What does this mean for investors?
Regardless of location, property has been largely on the
rise for the last 20 years, driven mainly by falling rates. With
almost nowhere left for interest rates to fall, that same level
of capital appreciation is unlikely to be repeated. If, as ASIC
believes, there are signs of a dangerous property bubble in
Sydney and Melbourne, residential housing could slump.
Whether or not this eventuates, all the data points to
the need for Australians to invest in globally diversified
portfolios. Now we have trend evidence that previously
sound investments are moving in the wrong direction,
portfolios need to be proactively managed to manage risks.
We recommend investors stop relying on purely local
investments, especially residential investment property
– and consider the full range of asset classes available
to them.
Analysis of the 2015 Update
Results:
10 years to 31 December 2014
› In 2014, all asset classes produced positive returns
with some particularly strong performance in the listed
property sector. International equities had a good year
relative to domestic equities. Domestic fixed income also
performed well due to the falling Australian cash rate.
› Over the longer 10-year period, all asset classes
analysed in this report performed well and produced
positive returns. In a notable departure from trend,
international shares (hedged) overtook Australian shares
as the best performing asset class over the 10 years to
31 December 2014.
“In a notable departure from trend,international shares (hedged)
overtook Australian shares as the best performing asset class
over the 10 years to 31 December 2014.”
2
Analysis of the 2015 Update
Comparison across asset classes
on a before-tax basis: 10 years
Before-tax returns over 10 years were
shaken up, with international shares now
heading the top four asset classes:
Exhibit 1 Gross returns for 10 years to December 2014
Returns (% p.a.)
1.International shares (hedged),
7.8% p.a. on a before tax, after
fees basis.
Australian
shares
2.Global fixed income (hedged),
7.6% p.a.
Residential
investment
Property
7.1
7.0
3.Australian shares, 7.1% p.a.
4.Australian residential investment
property, 7.0% p.a
Australian listed property had a
strong performing year (+26.8%) but
dropped to 1.6% p.a. over the 10-year
period because the year that dropped
out returned 32.2%. This meant that
Australian listed property was the
only asset that failed to keep up with
inflation, which was at 2.7% p.a. over
the 10-year period.
Australian
Listed
Property
1.6
Australian
Fixed
Income
6.5
Global
Fixed Income
(hedged)
7.6
Cash
3.4
Lower performers were:
› Australian fixed interest, 6.5% p.a.
› Global listed property (unhedged),
6.0% p.a.
› Global shares (unhedged), 5.4% p.a.
› Cash returns, 3.4% p.a.
Managed funds performed in line with
expectations over a 10-year horizon to
31 December 2014. Conservative
managed funds returned 6.0% p.a.,
while balanced managed funds returned
6.5% p.a. and growth managed funds
returned 6.7% p.a. The marginal
difference in returns between a
balanced fund and growth fund was
due to the great performance balanced
funds received over 10 years from
their exposure to global fixed income
(hedged) and international shares
(hedged) compared to the returns growth
funds received from their Australian
shares exposure.
Global Shares
(hedged)
7.8
Global Shares
(unhedged)
5.4
Global Listed
Property
(unhedged)
6.0
Conservative
managed
fund*
6.0
Balanced
managed
fund*
6.5
Growth
managed
fund*
6.7
0
1
2
3
4
5
6
7
8
9
10
 Gross return
–– CPI (2.7% p.a. inflation)
* Only before-tax returns have been calculated
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
3
Comparison across asset classes
taking into account tax: 10 years
However, returns changed significantly
when tax was factored into the analysis.
Tax affected assets such as fixed income
and cash more heavily than Australian
shares and Australian residential
investment property. Tax also had a less
noticeable impact on Australian assets
than it did on global assets.
Franking credits produced another source
of returns for Australian shares, while
tax deductible expenses from Australian
residential investment property lowered
taxes paid and led to returns that were
less impacted by tax in this asset class.
In contrast, defensive assets such as
Australian fixed interest and cash were
taxed without any concessions. As a result,
these were more heavily impacted by tax
than Australian shares and Australian
residential investment property.
After-tax returns were also noticeably
higher for investors paying the high
marginal tax rate but investing in an
asset class via a superannuation vehicle.
Superannuation becomes an even more
compelling investment when we take into
account the 2.0% Medicare levy increase
from 1 July 2014, which also impacted the
after-tax returns of all the asset classes.
Exhibit 2 Before & After Tax Returns for 10 Years to December 2014
Returns (% p.a.)
Australian
shares
7.1
7.4
5.3
7.6
7.0
Residential
investment
property
6.2
4.9
6.2
1.6
1.3
Australian
listed
property
0.8
1.3
Australian
fixed
income
6.5
5.3
3.4
5.5
7.6
Global
fixed
income
(hedged)
6.3
4.0
6.5
3.4
Cash
1.8
2.8
2.9
7.8
Global
shares
(hedged)
6.8
5.4
6.9
5.4
Global
shares
(unhedged)
4.6
3.5
4.7
6.0
Global
listed
property
(unhedged)
5.0
3.6
5.1
0
1
2
3
4
5
6
7
8
9
n Gross return
n Superannuation
n After Tax Lowest Marginal Tax Rate
–– CPI (2.7% p.a. inflation)
n After Tax Highest Marginal Tax Rate
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
4
10
Analysis of the 2015 Update
Comparison with last year’s gross
returns: 10 years
Last year’s top 10-year investment asset,
Australian shares, fell out of first place
into third. It was replaced with global
shares (hedged), producing 7.8% p.a.,
with global fixed income (hedged),
producing 7.6% p.a., coming in a close
second over the 10-year period.
Australian shares had a less than stellar
2014, held back by subdued economic
growth and relatively stretched
valuations. This combined with subdued
inflation led investors to Australian fixed
income assets. Although this did not
change the overall ranking of Australian
fixed interest, it returned 6.5% p.a. on
a gross basis compared to 6.2% p.a. in
2013 over a 10-year period.
Rankings for cash did not change. Cash
returned 3.4% p.a. compared to 3.7%
p.a. last year over the 10-year period.
Global shares (unhedged) remained in the
same spot, returning 5.4% p.a. this year
compared to 5.1% p.a. last year over the
10-year period.
Australian residential investment
property moved up two places, returning
7.0% p.a. this year compared to 6.1%
p.a. last year over a 10-year period.
Australian listed property remained in
the same spot returning 1.6% p.a. this
year, compared to 2.0% p.a. last year
over the 10-year period.
Finally, global listed property (unhedged)
fell two spots down, returning 6.0% p.a.
this year, compared to 6.4% p.a. last year
over a 10-year period.
Exhibit 3 10 years to December 2014 vs December 2013
Returns (% p.a.)
7.1
Australian
Shares
9.2
Residential
investment
Property
7.0
6.1
Australian
Listed
Property
1.6
2.0
Australian
Fixed
Income
6.5
6.2
Global
Fixed Income
(hedged)
7.6
7.5
3.4
3.7
Cash
7.8
8.2
Global Shares
(hedged)
5.4
5.1
Global Shares
(unhedged)
Global Listed
Property
(unhedged)
6.0
6.4
Conservative
managed
fund*
6.0
6.3
2.7
2.7
Balanced
managed
fund*
6.6
7.4
Growth
managed
fund
6.7
7.5
0
1
2
3
4
5
6
7
8
9
10
 10 years to December 2014
 10 years to December 2013
* Only the before-tax returns have been calculated
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
5
Comparison with and without
gearing: 10 years
Gearing enhanced returns for Australian
shares for investors at the highest and
lowest marginal tax rates.
Both groups of investors benefited from
receiving a higher amount of franking
credits on the geared portfolio.
For investors with residential investment
property, the low interest rate environment
has kept borrowing costs low, and
thus more recent gearing-related tax
deductions were modest. Proportionally,
rental yields and capital gains were
higher than for the 10-year period to
31 December 2014.
As a result, total returns on residential
property for both groups of investors
were higher after gearing compared to
investors who owned the full initial outlay
(no gearing), because the cost of the
borrowing was offset by rental income
and tax deductions.
Australian shares continued to
outperform residential property for the
lowest marginal tax rate after gearing was
taken into account. However, property
at the highest marginal tax rate returned
more relative to Australian shares after
gearing was taken into account.
Exhibit 4 Investment Returns for 10 Years to December 2014
Returns (% p.a.)
50% gearing
on initial investment
No gearing
8
7.7
7.4
7
6.7
6.3
6.2
6
5.8
5.3
4.9
5
4
3
2
1
0
After Tax
Lowest Marginal
Tax Rate
After Tax
Top Marginal
Tax Rate
After Tax
Lowest Marginal
Tax Rate
After Tax
Top Marginal
Tax Rate
 Australian Shares
 Residential Investment Property
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
6
Analysis of the 2015 Update
Results:
20 years to 31 December 2014
Most asset classes performed strongly,
with an uptick in returns from global
assets across to the domestic fixed
interest assets.
Australian shares performed better
over the longer 20-year period to 31
December 2014, as the poor performance
in 2014 was stretched out over the longer
timeframe, diluting its impact.
Comparison across asset classes
on a before-tax basis: 20 years
Australian shares and Australian
residential investment property continued
to perform strongly over the 20-year
period. Residential investment property
returned 9.8% p.a. over the 20-year
period, while Australian shares returned
9.5% p.a. This was followed closely by
global listed property (unhedged) which
returned 8.9% p.a.
Global shares (hedged) came next,
returning 8.6% p.a. Its unhedged
counterpart, global shares (unhedged),
returning 7.1% in the same period.
Hedging added an additional 1.5% p.a.
over the same period.
Global fixed interest also performed very
well, returning 8.6% p.a. Its domestic
counterpart, Australian fixed interest,
returned 7.5% p.a. over the same period.
Australian listed property finished with
7.7% p.a. while cash returned 3.7% p.a.
All asset classes beat inflation, which rose
by 2.7% p.a.
Exhibit 5 Gross Returns for 20 Years to December 2014
Returns (% p.a.)
Australian
shares
9.5
Residential
investment
property
9.8
Australian
listed
property
7.7
Australian
fixed
income
7.5
Global
fixed
income
(hedged)
8.6
Cash
3.7
Global
shares
(hedged)
8.6
Global
shares
(unhedged)
7.1
Global
listed
property
(unhedged)
8.9
1
2
3
4
5
6
7
8
9
10
11
12
n Gross return
–– CPI (2.7% p.a. inflation)
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
7
Comparison across asset classes
taking into account tax: 20 years
In a similar pattern to the 10-year results,
tax significantly changed returns,
particularly for investors in the high
marginal tax rate category.
For investors in super and the low
marginal tax category, tax reduced
returns for all asset classes aside from
Australian shares.
Over a longer timeframe, the impact of
tax as well as franking credits and tax
deductions becomes more apparent due
to compounding and a cumulative effect.
In Australian shares, franking credits
added 0.4% p.a., if an investor chose the
superannuation investment structure.
Alternatively, if they were taxed at the
lower marginal tax rate, franking credits
added an extra 0.2% p.a. over the
20-year period. Subsequently, investing
via super and at the lower marginal tax
rate added approximately 2.3% p.a. and
2.1% p.a. respectively, relative to the
higher marginal tax rate.
The impact of tax is more heavily felt on
Australian fixed interest and cash as they
are treated as income and are not offered
any tax concessions. Investing in cash
and paying the highest marginal tax rate
led to a 1.9% p.a. return over the 20-year
period, making it the only asset class and
investment structure that failed to keep
up with the 2.7% inflation rate.
Exhibit 6 Investment Returns for 20 Years to December 2014
Returns (% p.a.)
9.5
9.7
Australian
shares
7.6
9.9
9.8
Residential
investment
property
8.9
7.5
9.0
7.7
Australian
listed
property
6.7
4.5
6.9
7.5
Australian
fixed
income
6.1
3.9
6.4
Global
fixed
income
(hedged)
8.6
6.9
4.4
7.3
3.7
3.0
Cash
1.9
3.1
8.6
Global
shares
(hedged)
7.8
6.5
7.9
Global
shares
(unhedged)
6.4
7.1
5.3
6.5
8.9
Global
listed
property
(unhedged)
7.8
6.1
8.0
0
1
2
3
4
5
6
7
8
9
10
11
 Gross return
 Superannuation
 After Tax Lowest Marginal Tax Rate
–– CPI (2.7% p.a. inflation)
 After Tax Top Marginal Tax Rate
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
See Appendix for details of marginal tax rates.
8
12
Analysis of the 2015 Update
Comparison with last year’s gross
returns: 20 years
Comparing the 20-year results to 31
December 2013 and 31 December 2014
on a gross basis, last year’s winner,
Australian residential investment
property, stayed in first place, returning
9.8% p.a. Australian shares stayed in
second place, returning 9.5% this year
compared to 8.7% last year.
Australian listed property moved up
one spot, returning 7.7% p.a. this year
compared to 6.1% p.a. last year. Its global
counterpart, global listed property,
leapt three spots into third place,
returning 8.9% p.a. compared to 6.2%
p.a. last year.
Australian fixed interest fell two spots,
despite returning a higher 7.5% p.a. this
year compared to 6.8% p.a. last year.
Global fixed interest fell one spot down,
returning 8.6% p.a. this year compared to
7.9% p.a. last year.
Global shares (hedged) also fell one
spot down, returning 8.6% p.a. this
year compared to 8.0% p.a. last year.
Its unhedged counterpart, global shares
(unhedged), stayed the same rank
returning 7.1% p.a. this year compared to
6.0% p.a. last year.
Finally, cash returned 3.7% p.a. this year
compared to 3.8% p.a. last year.
Exhibit 7 20 Years to December 2014 vs December 2013
Returns (% p.a.)
9.5
Australian
shares
8.7
Residential
investment
property
9.8
9.9
Australian
listed
property
7.7
6.1
Australian
fixed
income
7.5
6.8
Global
fixed
income
(hedged)
8.6
7.9
3.7
Cash
3.8
Global
shares
(hedged)
8.6
8.0
Global
shares
(unhedged)
7.1
6.0
Global
listed
property
(unhedged)
8.9
6.2
0
1
2
3
4
5
6
7
8
9
10
11
12
 20 years December 2014
 20 years December 2013
–– CPI (2.7% p.a. inflation)
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
9
Comparison with and without
gearing: 20 years
Borrowed funds enhanced returns
for Australian shares and residential
investment property for both groups of
investors over the 20-year period.
After gearing was taken into account,
Australian shares outperformed
residential property for the lowest
marginal tax rate. However, at the highest
marginal tax rate, Australian shares and
residential property both returned 8.7%
after gearing.
For investors in the lowest marginal
tax rate, gearing enhanced returns for
both Australian shares and residential
investment property. This was also true at
the highest marginal tax rate.
Exhibit 8 Investment Returns for 20 Years to December 2014
Returns (% p.a.)
No gearing
50% gearing
on initial investment
12
11
10
9
10.7
10.0
9.7
8.9
8
8.7 8.7
7.6 7.5
7
6
5
4
3
2
1
0
After Tax
Lowest Marginal
Tax Rate
After Tax
Top Marginal
Tax Rate
After Tax
Lowest Marginal
Tax Rate
After Tax
Top Marginal
Tax Rate
 Australian Shares
 Residential Investment Property
Note: All returns are net of costs. Past performance is not a reliable indicator of future performance.
10
Appendix
Appendix
This analysis has been conducted on the following basis:
Investment comparison
Capital gains
› All investment returns are determined after
taking into account expenses relating to the
acquisition, management and disposal of the
asset. Gross returns are calculated before
tax but after costs. Net returns allow for the
taxation treatment of each investment over the
period of the analysis. This aims to represent
a realistic method of comparing the different
asset classes for an investor.
› Generally, assets acquired on or after
20 September 1985 are subject to the capital
gains tax provisions. For the calculation of
10- and 20-year returns, capital gains tax, is
calculated on the initial investment and any
subsequent reinvestment of income. Cash is not
subject to capital gains tax as all gains are taxed
as income and so are subject to marginal rates.
For ease of calculation and in the absence of
Australian bonds coupon and capital data, the
report assumes returns from Australian bonds
are treated as income.
› Compound returns are calculated over
a 10-year period from 1 January 2005 to
31 December 2014, and over a 20-year period
from 1 January 1995 to 31 December 2014.
The returns are equivalent to the per annum
compound returns that investors would have
received for an investment in the particular
asset class if they invested in an equivalent
portfolio over the two periods.
Income tax
› The lowest and highest marginal tax rates are
currently 21% and 47% respectively. These
rates have varied slightly over the 10 and 20
years due to changes in taxation policy and the
2% Medicare levy. These variations have been
taken into account in the calculation of aftertax returns. The bottom and top marginal rates
both include the Medicare levy.
› These variations have been taken into account,
including the impact on the calculation of
franking credits, which affects after-tax returns
for Australian shares.
› Assets acquired prior to 21 September 1999
and held for longer than 12 months can be
assessed for capital gains tax in one of two
ways. Private investors can choose to pay
capital gains tax (at their marginal tax rate) on
100% of the capital gain (with indexation of the
tax cost) or 50% of their capital gain (with no
indexation). In this report, we have presented
sector returns based upon the calculation
method that provides the higher after-tax
returns. The discounted capital gain method (as
opposed to indexation) has provided the higher
after-tax returns in all cases.
Capital losses
› Capital losses may be carried forward
indefinitely and offset against other capital
gains in future periods. An assumption
has been made that the investor has other
investments – either today or in the future –
that have produced or will produce capital gains
against which capital losses may be offset.
Imputation credits
› Since July 2000, low-tax rate investors with
imputation credits remaining after offsetting all
tax have been able to claim back the excess as
a refund from the Australian Taxation Office.
Prior to this, the excess could only be offset
against income tax from other sources. An
assumption has been made that before July
2000, the investor had other sources of income
against which to offset this excess.
11
Effective tax rates
Superannuation
› This study shows that tax (and its differing
effect on capital gains and income) makes a
significant difference to the end return for an
investor. Overall, for the 20-year period to 31
December 2014, the effective tax rate for top
marginal tax payers were:
› The investment earnings of a complying
superannuation fund or retirement savings
account have been taxed at a rate of 15% as of
1 July 1988. Prior to this, there was no tax on
superannuation earnings. The capital gains tax
discount for superannuation funds is one-third
of the capital gains included in a superannuation
fund’s assessable income. The tax that a
superannuation fund pays on its assessable
income (earnings and taxable contributions) can
be reduced by using of imputation credits.
20 yrs*
Australian shares
20%
Australian listed property
42%
Residential investment property
24%
Global shares
26%
Global shares (hedged)
24%
Global listed property
32%
Australian bonds and cash
48%
› In the superannuation example, it is assumed
the investor is over the age of 60 when assets
are redeemed, so no tax is payable on a
superannuation lump sum or income stream
benefit payments.
Global bonds
49%
Investment measures
* To 31 December 2014.
Gearing
› After-tax returns with gearing have also been
calculated for Australian shares and residential
investment property over the 10-year period
from 1 January 2005 to 31 December 2014,
and over the 20-year period from 1 January
1995 to 31 December 2014. Half of the initial
investment is assumed to be borrowed, and
gearing arrangements are assumed to involve
interest-only loans (that is, periodic payments
do not include any repayment of principal). In
addition, allowance is made for the deductibility
of interest costs.
› Borrowing costs are based on data from the
Reserve Bank of Australia (RBA) bulletin. The
borrowing costs for residential investment
property are based on the standard variable
rate for housing loans. The borrowing costs
for Australian shares are based on the margin
loans rate.
12
› The residential property measure is a
population-weighted average return calculated
across major capital cities. Increases in value are
based on median house prices obtained from
the Real Estate Institute of Australia.
› Data from the Australian Bureau of Statistics
is used to make adjustments for capital
improvements. Net rental income allows
for vacancy rates, maintenance expenses,
management fees, government charges, land
tax and insurance. Acquisition and disposal
costs include conveyancing, stamp duty and
agent’s fees.
› The cash measure assumes an investment of
$50,000 in cash management bank accounts,
based on an average of the five largest banks’
rates sourced from the RBA.
› The Australian shares measure is based
on investment in listed shares, with price
movements and dividend reinvestment
consistent with the S&P/ASX All Ordinaries
Accumulation Index. Allowance is made for
brokerage and stamp duty (where applicable)
on acquisition and disposal. Stamp duty ceased
to apply from 1 July 2001 for transfers of
marketable securities quoted on the Australian
Securities Exchange. Dividend franking is taken
into account in determining the impact of tax
on dividends.
Appendix
› The Australian bonds measure is based on
investment in Australian Government and
corporate bonds. Returns are derived from the
UBS Australia Composite Bond Index. For ease
of calculation and in the absence of available
data, price movements and coupon payments
are both deemed to be taxed as income.
› The global listed property measure is based
on dividend reinvestment consistent with the
FTSE EPRA/NAREIT Developed Index in
Australian dollars (unhedged). Allowance is
made for brokerage on acquisition and disposal.
Withholding taxes are used to offset Australian
taxes in the year the dividends are received.
› The Australian listed property measure
is based on the returns implied by the
S&P/ASX 200 Property Trust (Accumulation)
Index. Acquisition and disposal costs, such
as brokerage and stamp duty (where
applicable), have been factored into the return
calculations. Assumptions have been made
with respect to the tax treatment of listed
property income, including the component
of tax-free income (abolished in July 2002)
and tax-deferred income.
› The conservative managed fund measure is
based on investment in an indexed managed
fund with an asset allocation consistent with the
industry average for funds that have between
25–35% growth assets. Growth assets include
Australian shares, overseas shares (hedged and
unhedged) and property. Allowance is made for
buy/sell spreads on acquisition and disposal,
and annual investment management fees
equivalent to that of a retail indexed manager.
After-tax returns are not calculated due to lack
of data on distributions.
› The global shares (unhedged) measure is
based on investment in listed shares with
price movements and dividend reinvestment
consistent with the Russell Developed Large
Cap Index (unhedged) in Australian dollars
from 1997, onwards and the MSCI World exAustralia Gross Dividends Accumulation Index
(unhedged) in Australian dollars prior to 1997.
Allowance is made for brokerage on acquisition
and disposal. Withholding taxes are used to
offset Australian taxes in the year the dividends
are received.
› The global shares (hedged) measure is
based on investment in listed shares with
price movements and dividend reinvestment
consistent with the Russell Developed Large
Cap Index (hedged) in Australian dollars
from 2000 onwards, and the MSCI World exAustralia Gross Dividends Accumulation Index
(hedged) in Australian dollars prior to 2000.
Allowance is made for brokerage on acquisition
and disposal. Withholding taxes are used to
offset Australian taxes in the year the dividends
are received.
› The balanced managed fund measure is based
on investment in an indexed managed fund with
an asset allocation consistent with the industry
average for funds that have between 65–75%
growth assets. Growth assets include Australian
shares, overseas shares (hedged and unhedged)
and property. Allowance is made for buy/
sell spreads on acquisition and disposal, and
annual investment management fees equivalent
to that of a retail indexed manager. After-tax
returns are not calculated due to lack of data on
distributions.
› The growth managed fund measure is based
on investment in an indexed managed fund with
an asset allocation consistent with the industry
average for funds that have between 75–85%
growth assets. Growth assets include Australian
shares, overseas shares (hedged and unhedged)
and property. Allowance is made for buy/sell
spreads on acquisition and disposal, and annual
investment management fees equivalent to that
of a retail indexed manager. After-tax returns
are not calculated due to lack of data
on distributions.
13
Russell
Investments
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Russell Investments/ASX Long-term Investing Report
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS License 247185 (“RIM”). This document provides general information only and
has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether
this information is appropriate to your objectives, financial situation or needs. This information has been compiled from sources believed reliable, but is not
guaranteed. Past performance is not a reliable indicator of future performance.
Copyright © 2015 Russell Investments. All rights reserved. This material is proprietary and may not be reproduced, transferred or distributed in any form
without prior written permission from Russell Investments.
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